Consideration
Consideration...
The price paid for the
promise
Bargain
 A promise asked for, or relied upon, as an aspect
of a bargain between the parties to the contract
 Dunlop Pneumatic Tyre Company v
Selfridge & Company [1915] AC 847
“An act or forbearance of one
party, or promise therof, is the
price for which the promise of
the other is bought, and the
promise thus given for value is
enforceable”
Sir Frederick Pollock, adopted by the House of Lords in Dunlop Pneumatic Tyre
Company Ltd v Selfridge & Company Ltd at 855
Consideration
Must be bargained for
Must be performed in return for a
promise – quid pro quo
Is a required element in the
formation of a contract
except deeds
Without consideration a promise
cannot be enforced:
SO, only a party providing
consideration can enforce a promise
Past consideration is not good
consideration
If what is done is not done as a reaction to the
promise, it cannot be good consideration
 Roscorla v Thomas (1842) 3QB 234
 Eastwood v Kenyon (1840) 113 ER 482
PRIVITY OF CONTRACT
Only parties to a contract
may enforce, or be bound by,
a contract
Dunlop Pneumatic Tyre Co Ltd v Selfridge &
Co
“My lords, in the law of
England certain principles
are fundamental. One is that
only a person who is a party
to a contract can sue on it.”
Lord Haldane at 853
Cases on Privity
 Tweddle v Atkinson
[1861] 121 ER 762
 Beswick
v Beswick
[1966] 1 Ch 538.
Summary
For a contract to be formed there must be:
 An Offer
 Which has been Accepted
 by parties who intended to create legal relations
 And bargained or paid for their mutual promises in the
form of Consideration
 And only these parties may enforce the contractual
promises (Privity)
Terms
Term or representation?


Objective test of intention
“reasonable man”

Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR
41

Indicative factors include
1. Importance of statement
2. Time between statement and contract
3. Special knowledge or skill or access to
truth of one party
4. Inclusion of statement in any
subsequent document

Ellul &Ellul v Oakes (1972) 3 SASR 377
What kind of term?
A term may be either:

a Condition
Essential term
 Breach – entitlement to terminate/or
damages


a Warranty
Ancillary term
 Breach – damages, but no termination


an Innominate term
Intermediate term
 Breach – termination if sufficiently serious

Test: how essential was the promise?
“The question whether a term in a contract is a
condition or a warranty, i.e. an essential or a
non-essential promise, depends upon the
intention of the parties as appearing in or from
the contract. The test of essentiality is whether
it appears from the general nature of the
contract considered as a whole, or from some
particular term or terms, that the promise is of
such importance to the promisee that he would
not have entered into the contract unless he
had been assured of a strict, or a substantial,
performance of the promise, as the case may be,
and that this ought to have been apparent to
the promisor….
Jordan CJ in Tramways Advertising v Luna Park
 Tramways Advertising
Pty Ltd v Luna
Park (NSW) Ltd
(1938) NSWLR 633
 Associated Newspapers Limited v Bancks (1951) 83 CLR
322
Warranty
 Bettini v Gye (1876) 1QBD 183 per Blackburn J said at 188:
“[a condition is] a stipulation
[which] goes to the root of the
matter, so that a failure to perform
it would render the performance of
the rest of the contract a thing
different in substance from what
the defendant has stipulated for.”
Implied terms
Terms may be implied by:
 Trade usage or custom
 Statute
 Courts, based on facts and circumstances of contract
Austral Pacific Group Ltd (in liq) v Airservices
Australia (2000) 203 CLR 136
“…statutorily created and
take effect by legal fiction,
namely that the parties make
a contract including the
relevant obligations.”
Terms implied by Statute
Revise: How to read a statute
E.g. TRADE PRACTICES ACT 1974 - SECT 52
Misleading or deceptive conduct
(1) A corporation shall not, in trade or
commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
Elements of a section:
 Corporation
 In trade or commerce
 Engage in conduct
 Misleading or deceptive
 Defined by legislation (definitions section) or by
courts (case law.)
Legislation
 Sale of Goods Act 1923 (NSW)
 Contract for the sale of goods (not
services)
 Trade Practices Act 1974(Cth)
 Contract for supply of goods or services
by a corporation to a consumer
Sale of Goods Act
6 Sale and agreement to sell
(1) A contract of sale of goods is a contract whereby the
seller transfers or agrees to transfer the property in
goods to the buyer for a money consideration called
the price. There may be a contract of sale between one
part owner and another.
Trade Practices Act – Part V Division
2 Conditions and Warranties in
Consumer Transactions
e.g. - s 70 Supply by description
(1) Where there is a contract for the supply (otherwise
than by way of sale by auction) by a corporation in
the course of a business of goods to a consumer …
Consumer s4B TPA
(1) (a) a person shall be …a consumer if, and only if:
(i) the price of the goods did not exceed the prescribed
amount; [$40,000]or
(ii) where that price exceeded the prescribed amount-the goods were of a kind ordinarily acquired for
personal, domestic or household use or
consumption or the goods consisted of a
commercial road vehicle;
and the person did not acquire the goods, or hold
himself or herself out as acquiring the goods, for the
purpose of re-supply or for the purpose of using them
up or transforming them, in trade or commerce, in the
course of a process of production or manufacture or of
repairing or treating other goods or fixtures on land; …
Corporation – extended definition
 s6 TPA
 Corporation
 foreign, trading or financial corporation
 Persons
 in trade or commerce between either of the States or
territories or between Australia and places outside
Australia
 using post or telephonic services
 active within a territory
Be careful when using this section
s18 Sale of Goods Act 1923 (NSW)
Where there is a contract for the sale of goods by
description, there is an implied condition that the
goods shall correspond with the description; and if the
sale be by sample as well as by description, it is not
sufficient that the bulk of the goods corresponds with
the sample if the goods do not also correspond with
the description.
TRADE PRACTICES ACT 1974(Cth)- s 70
Supply by description
(1) Where there is a contract for the supply
(otherwise than by way of sale by auction) by a
corporation in the course of a business of goods
to a consumer by description, there is an implied
condition that the goods will correspond with the
description, …
Correspondence with description
SGA s18: Sale by description
Where there is
 a contract
 for the sale of goods
 by description,
 there is an implied condition
 that the goods shall correspond with
the description; …
Sale by description?
Ashington Piggeries v
Christopher Hill
[1971] 1AllER847
Grant v Australian Knitting
Mills (1936) 54 CLR 49
Ashington Piggeries case:
 Viscount Dilhorne:
“Did
the presence of DMNA merely
affect the quality of the herring
meal or did it make a difference in
kind? If the former, then there was
no failure to deliver in accordance
with the description. If the latter,
there was.”
Fitness for purpose
SGA s19(1) Fitness for purpose
(1) Where the buyer expressly or by implication
makes known to the seller the particular purpose
for which the goods are required so as to show
that the buyer relies on the seller’s skill or
judgment, and the goods are of a description
which it is in the course of the seller’s business to
supply (whether the seller be the manufacturer
or not), there is an implied condition that the
goods shall be reasonably fit for such purpose:
Provided that in the case of a contract for the sale
of a specified article under its patent or other
trade name there is no implied condition as to its
fitness for any particular purpose.
Trade Practices Act s71(2)
Where a corporation supplies … goods to a
consumer in the course of a business and the
consumer, expressly or by implication, makes
known to the corporation or to the person by whom
any antecedent negotiations are conducted any
particular purpose for which the goods are being
acquired, there is an implied condition that the
goods supplied under the contract for the supply of
the goods are reasonably fit for that purpose,
whether or not that is a purpose for which such
goods are commonly supplied, except where the
circumstances show that the consumer does not
rely, or that it is unreasonable for him or her to rely,
on the skill or judgment of the corporation or of
that person.
Purpose made known?
 Obvious purpose?
 Underpants – Grant v Australian
Knitting Mills
Reliance on seller’s
judgement?
 Ashington Piggeries v
Christopher Hill.
Course of seller’s business?
 David Jones Ltd v Willis
(1934) 52 CLR 110
 Ashington Piggeries v Christopher Hill
Not trade name?
 Reliance, not reputation
TPA s71
 Similar to s18
 Consumer requirement
 Purchase by trade name not a bar
 E v Australian Red
Cross Society (1992)
 Provision of services
 – not supply of goods.
Merchantable quality
Sale of Goods Act s19(2)
(2) Where goods are
 bought by description from a
 seller who deals in goods of that description
(whether the seller be the manufacturer or not),
 there is an implied condition that
 the goods shall be of merchantable quality…
Trade Practices Act s71
(1) Where a corporation
 supplies…
 goods to a
 consumer
 in the course of a business,
 there is an implied condition that
 the goods supplied under the contract for
the supply of the goods are of
merchantable quality,…
Merchantable quality?
66(2) Goods of any kind are of
merchantable quality within the meaning of
this Division if they are as fit for the purpose
or purposes for which goods of that kind are
commonly bought as it is reasonable to
expect having regard to any description
applied to them, the price (if relevant) and
all the other relevant circumstances.
Merchantable quality?
Carpet Call Pty Ltd v Chan (1987) ATPR 41025
Rasell v. Garden City Vinyl and Carpet
Centre Pty Ltd (1991) ATPR 41-152
Flooring:
Mavis was particularly interested in flooring as
she had difficulties keeping her slate tiles clean.
She searched for low maintenance flooring and
after extensive shopping decided on single sheet
vinyl flooring. She saw just the thing at Discount
Lino Barn, close to Kylie’s home. Kylie indicated
that she didn’t share her mother’s preference for
vinyl flooring as it was cold underfoot and had
suggested kitchen carpet. Kylie and Mavis spoke
to Mike at Discount Lino Barn who suggested
under-floor heating could address Kylie’s
temperature issues. Kylie provided details of the
under floor heating options while her mother
left the conference room to offer slices of her
coffee cake to the other staff….
She is also angry about the flooring she has had
installed. Despite Kylie’s protests she went with
the single sheet vinyl, and did not have under
floor heating installed. The vinyl, while easier to
clean than the slate, is marking and scuffing
badly however. She has only had it down 6
months, and already there are a number of wear
marks. Her cupcake classes – which she runs 5
times a week and more often in school holidays –
are now so popular that she has at least 20
students per class. Because of her renovations
she has room for them all around her lovely new
island bench, but the vinyl around the island
bench almost looks like a race track.
It is as if her students have worn a path around
the bench – and in only 6 months.
The vinyl was quite expensive – as she had heavy
grade domestic installed – but Mavis is very
unhappy. She hasn’t yet paid the bill for the vinyl
as she has been arguing with the company. They
are, according to Mavis, now getting nasty, and
want their $45,000 immediately.
Fridge
She also advised that her mother was having
problems with Whitegoods World from which she
had bought her fridge. Kylie advised that her
mother required a “French door” fridge with
freezer drawers underneath to accommodate the
large baking trays she used for her cakes. She had
ordered the fridge she needed from Whitegoods
World but had experienced delivery problems.
Her oven purchase was much more successful than her
fridge which, on the very day it was due to be delivered –
not only did not arrive, but the shop called her to advise
that delivery was delayed for one month. Mavis said to
the shop keeper: “Well that’s no good to me. I ordered
that fridge for today. I need that fridge today. I told you
when I needed the fridge. The only reason I ordered
from you was that you told me I could have it today. If
you can’t give it to me today, you can just keep your
fridge!! I don’t want it anymore.” Mavis then rang Quick
Fridge and ordered and received another fridge that
afternoon– suitable for her requirements.
However, one month later, Whitegoods
World delivered the fridge originally
ordered and demanded payment.
Mavis refused to accept the fridge or to
pay, and advised them that the order
had been cancelled. They are
threatening to sue Mavis for the price
of the fridge - $5,500.
Oven
Mavis returned to the conference room. She
advised that she had had to make a large coffee
cake that morning, even though her preference
would have been to make cup-cakes. In fact, one of
her legal problems was her cup-cake oven. Cake
Cookers is a specialist retailer which sells products
designed for those who like to cook cakes. It retails
a number of specialist pans and other baking
utensils – many imported from America and not
readily available in Australia - as well as a special
range of cake ovens.
They are located in Broome – and
Mavis lives in NSW, but Cake
Cookers sells throughout Australia
by catalogue. Mavis wanted a special
cake oven in her new kitchen. She
saw an oven that looked perfect for
her in their catalogue – the picture
showed 8 slide out patty pan trays
instead of oven trays – exactly what
she wanted.
She rang the store and spoke to Cathy. She told
Cathy all about her cupcakes, her favourite
recipes, and her interest in the patty pan oven
in their catalogue. Cathy told her that the
patty pan oven had eight slide out patty pan
holders – instead of oven racks – and that each
patty pan holder would take one dozen patty
pans. Even better, they came with self cleaning
silicone inserts. Mavis was delighted about the
self cleaning but concerned that each tray
would only take one dozen patty pans.
Although after discussion with Cathy, she was
convinced that the overall capacity of the oven
was appropriate, and so she placed an order….
Mavis advised that even if she had known about
the cake order she would have had difficulty
fulfilling it because of problems with her newly
installed cake oven. When the oven arrived she saw
that instead of Australian sized delicate patty pan
holders, the cake trays were American size muffin
holders – and two trays were even jumbo sized
Texas muffin size holders. This is not what Mavis
wanted at all.
Mavis rang Cathy and told her the oven was not
what she had wanted at all, and not suitable for the
cakes in which she specialised. Cathy said she was
sorry that Mavis was disappointed, but there is
nothing that they can do about it now. Mavis wants
to know if she still has to pay the $8,000 for the
special cake oven.